Personal Loans
A multitude of business and personal loan products to suit all circumstances: competitive rates on secured, unsecured, short and long-term deals.
Personal Loans
Overview
Unsecured
Interest Rate
Credit Insurance
Glossary
Types of Loans
Secured Loans
Repayment Schedule
Early Repayment Penalties
Overview
If you need to additional money to start a business, to consolidate your existing debts, to buy a car or to pay for a holiday, a personal loan might be the answer. Every bank and building society has different lending criteria so it is important to investigate multiple options to ensure that you receive an loan that fits your needs. Many lenders specialize in loans to individuals with bad credit, so you might be able to get a loan even if you have declared bankruptcy or have county court judgements against you in the past. Personal loans can have a variety of structures. The key features of a personal loan are:
• The security required for the loan
• The interest rate (or APR)
• The repayment schedule
Types of Loans
One of the most important distinctions between different types of loans is the security required by the lender. Security refers to the collateral offered to the bank to lend money against. If you fail to repay your loan in the timely fashion, the lender will have the right to seize your collateral and sell it in order to repay the loan. High-quality collateral reduces risk to the lender and often results in a lower rate of interest on the loan. Individuals who have declared bankruptcy or otherwise have poor quality credit often find it impossible to borrow money without offering high-quality collateral as security on the loan.
Unsecured Loans
Unsecured loans are loans made to individuals which do not require any form of collateral since the credit quality and financial position of the individual is sufficient for the lender to extend credit without collateral. Most lenders limit the size of the unsecured loans to less than £15,000 or £25,000 without special credit approval.
Secured Loans
Most secured personal loans use excess equity in your home or other property, as collateral but other types of assets might be acceptable. Home equity is difference between the value of your home and amount of mortgage outstanding on it. Your home will be at risk if you fail to make repayments on loan, which uses your home as collateral.
Secured Loan.
• Requires collateral, usually your home, which will be at risk if you fail to make repayments.
• Can often be used for any purpose.
• Loan amount could be limited by the value of your collateral (e.g. the value of your home will limit the amount of the loan you can secure on it).
• Is often cheaper than an unsecured loan.
Unsecured Loan.
• Requires that the credit rating and financial position of the applicant is such that no collateral is required.
• The lender might restrict the loan to explicitly exclude certain purposes (e.g. to start a business).
• Most lenders limit unsecured loans to less than £15,000 or £25,000.
Interest Rate
An interest rate is the amount charged for a loan. It is usually expressed as a percentage of the loan amount that is charged on an annual basis. Because lenders often calculate interest rates differently, statutory regulations set out the calculation for the Annual Percentage Rate of charge (APR).
The APR is the true rate of interest charged on a loan taking into account the total cost of interest and other charges (e.g. broker's fees / legal fees). The APR is intended to give consumers a level playing field to compare personal loans against each other. For information on how the APR is calculated, please refer to the website of the Office of Fair Trading (http://www.oft.gov.uk/).
Repayment Schedule
The repayment schedule on a loan stipulates the length of time over which the loan will be repaid and frequency of the payments. Together with the interest rate, this information determines the size of the loan repayments. For example, if you wish to borrow £5,000 over 3 years at an APR of 9.7%, the monthly repayments will be £159.77 and total repayment over the loan term would be £5,751.70.
Credit Insurance
An interest rate is the amount charged for a loan. It is usually expressed as a percentage of the loan amount that is charged on an annual basis. Because lenders often calculate interest rates differently, statutory regulations set out the calculation for the Annual Percentage Rate of charge (APR).
The APR is the true rate of interest charged on a loan taking into account the total cost of interest and other charges (e.g. broker's fees / legal fees). The APR is intended to give consumers a level playing field to compare personal loans against each other. For information on how the APR is calculated, please refer to the website of the Office of Fair Trading (http://www.oft.gov.uk/).
Early Repayment Penalties
Some lenders levy penalties if you choose to repay the loan before its final maturity date. You should carefully investigate these charges if you think that you might want to pay the loan back early.
Glossary
Annual Percentage Rate (APR) - The APR is the true rate of interest charged on a loan taking into account the total cost of interest and other charges (e.g. broker's fees / legal fees).
Collateral - Assets pledged as security for a loan. In the event that a borrower defaults on the terms of a loan, the collateral may be sold, with the proceeds used to satisfy any remaining obligations.
Secured Loan - A loan with assets (usually, home equity) pledged as collateral. The value of the collateral mitigates the lenders risk.
Unsecured Loan - A loan without any collateral which depends on the credit history and financial position of the borrower.